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Good news – Life insurers have the reserve buffers to withstand COVID-19 fallout

The South African life insurance industry has more than double the legally required reserve buffers in place and is therefore well positioned to deal with the COVID-19 fallout over the coming months. The Association for Savings and Investment South Africa (ASISA) recently released the new long-term insurance statistics gathered from ASISA members in line with the new regulatory reporting requirements introduced by the Insurance Act of 2018.

According to Hennie de Villiers, deputy chair of the ASISA Life and Risk Board Committee, the statistics show that the life insurance industry held assets of R3 trillion at the end of 2019 while liabilities amounted to R2.7 trillion.  De Villiers mentions that this left the industry with free assets of R373 billion, which are more than double the reserve buffer required by the new Solvency Capital Requirements (SCR). Despite the recent market shocks caused by COVID-19 concerns, he is confident that the industry remains well capitalised despite the current turmoil.

De Villiers says a healthy reserve buffer is critically important for the long-term insurance industry, because it enables insurers to honour long-term promises made to policyholders. “When a policyholder buys life cover at age 25, the life company must be in a financial position to make a promise to honour a claim, even if it comes 50 years later. Equally, policyholders with savings policies like retirement annuities want the peace of mind that a company will still be around to honour the maturity value of their investment policies many years down the line.” He further adds that healthy reserves take on even greater importance in times of crisis.

De Villiers points out that the life industry exists to make sure that valid claims and benefits are paid to policyholders and beneficiaries as quickly as possible to ease financial burdens in a time of need. He adds that while sometimes processes might fail, the statistics show that for the most the industry is getting it right.

Significant statistics

  • At the end of 2019, there were 42.5 million individual recurring premium policies and 2.9 million individual single premium policies in force.
  • The statistics from the Long-term Insurance Ombudsman show that on average around 5 500 complaints made against life insurers are investigated annually of which around 1 000 are ruled in favour of the complainant.
  • South African life insurers injected R491 billion into the economy last year through claims and benefit payments made to policyholders and beneficiaries.
  • The number of individual risk policies (life, disability, income protection and dread disease) showed a healthy increase of 30.8% in 2019, from 8.9 million policies at the start of 2019 to 11.6 million at the end of the year.
  • Individual funeral policies increased by 11.6% from 13.5 million policies at the beginning of 2019 to 15 million at the end of the year.
  • Last year that the average South African income earner had a combined life and disability cover shortfall of at least R2.2 million at the end of 2018. This translates to a total insurance gap of R34.7 trillion for South Africa’s 15.6 million earners.
  • There was slight decline of 3% in the number of savings policies (endowment and retirement annuities). At the beginning of 2019 there were 6.7 million in force savings policies compared to 6.5 million at the end of 2019.

“Policyholders who are experiencing financial difficulties and who might not be able to afford their premiums should contact their financial adviser or insurer with urgency to discuss potential solutions. In the same vein, given the turmoil on the financial markets, now is probably not a good time to cash in your savings policy. Rather speak to your financial adviser.”   De Villiers says life insurers are also looking at ways to assist policyholders who may be struggling financially as a result of COVID-19 measures, but adds that this will be done on a case by case basis.

As stated last week, the current state of affairs provides you with a unique opportunity to prove your value-add to your clients. You are welcome to use information we provide here to communicate with your clients and provide them with peace of mind in a time where they will be very receptive, sitting at home.

Click here to download the ASISA media release.

Leon Campher, CEO of ASISA also confirmed that services rendered by ASISA member companies have been included on Government’s list of enabling services considered “critical business continuity services”. As a result, ASISA’s members including life insurers, investment managers, Collective Investment Scheme (CIS) companies and Linked Investment Services Providers (Lisps) have confirmed that contingency plans are in place to ensure that the savings and investment industry are able to provide policyholders, beneficiaries and investors with uninterrupted service during the 21-day lockdown period. “Beneficiaries may rest assured that they will receive these income payments as normal.”

Click here to download the ASISA media release which contains details of all services which will not be disrupted and can be sent to your clients to reassure them.

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